| The United States is an innovation-based economy that relies on research and development (R&D) to fuel economic growth. R&D tax credits are used by both state and federal policymakers to encourage additional private investments into R&D which, in turn, fuel economic growth. While empirical analysis generally concludes that R&D tax credits have a positive impact on GDP growth, the impact of R&D tax credits on economic growth during a recession has not been examined. This thesis investigates the impact of state-based R&D tax credits on state GDP growth during the economic downturn of the 2007-2009 recession. Data from the Bureau of Economic Analysis, Bureau of Labor Statistics, National Science Foundation, and legislative statutes are examined to determine the impact of R&D tax credits through a recession via a multivariate regression analysis. The results suggest that in an economic recession, the presence of an R&D tax credit dampens the severity of an economic downturn when compared, ceteris paribus, to states without such tax credit. However, R&D tax credit itself should not be seen as a magic bullet that works in isolation. Many factors influence economic performance, and R&D tax credits represent just one policy tool influencing economic growth within a state. |
